Because the Colombian peso depreciated more than 20%, higher commodity prices and terms of trade will be taken into account
Fitch Ratings' position is key to weighing up against the Fed's interest rates. PHOTO: EFE
The first 100 days of President Gustavo Petro's government were marked mainly by the country's economy. The dollar, interest rates, inflation, unemployment, among others, marked a wave of criticism of the new president's management.
This will result in the climate for doing business in Colombia. The most recent report by Fitch Ratings stated that the economic environment in Colombia makes that companies are firm and risk-averse.
For this reason, Fitch Ratings, rating agency whose position is key to weigh against the Fed interest rates, warned that although Colombia has had a favorable economic performance so far this year, after having an annual growth of the gross domestic product (GDP) of 12.6%, as of June 2022, it is taken into account note that this grew driven by robust domestic consumption and export growth of 51.9%.
“The sharp slowdown in economic activity warned by the International Monetary Fund (IMF) and World Bank (WB)by 2023 it will mean a complex scenario for the country, understanding that the main forecasts do not allow us to see a recession scenario in it”, says the report of the rating agency known by Valora Analitik.
According to the consultant, since the Colombian peso depreciated more than 20%, the outlook will take into account higher prices of raw materials and terms of trade .
Economic projections for 2022 and 2023
Last September, the rating agency again gave projections on the growth of the Colombian economy. According to it, this will grow to 7% by the end of 2022, a figure higher than the 6% that was expected.
This, according to the rating agency , due to a more robust economic activity and due to the level of household consumption.
However, Fitch Ratings indicated that by 2023 it is expected that this growth will not exceed 2%, a figure lower than the 3% that was expected, due to the global recession, as well as some of the country's trading partners, especially the United States and Europe.< /p>
Change of the economic regime in Colombia
In Colombia it is believed that the decisions of the new increases in the interest rate of the United States Federal Reserve (Fed) It has implications and puts pressure on the Banco de la República to do the same, which could have an impact on the country's economic growth. Recently, the director of Analysis and Strategy of Casa de Bolsa, Juan David Ballén, stated in Caracol Noticias that the country is moving towards a change of economic regime.
He said that right now we are in a reflationary regime in which economic growth was very high, in double digits, and inflation came at the same rate, but what will be seen from this second semester of the year is a change towards a stagflationary regime, that is, that economic growth will begin to slow down on a quarterly basis and will last until 2023, while inflation will remain high.
“In the case of economic growth, which will overshadow the same growth in interest rates. We have high inflation that affects consumption, we have a decrease in savings, we have commodity prices that are lower than at the beginning of the year and a number of other variables that influence growth expectations,” he said. Ballén in the middle.
He explained that, on the inflation side, it is moved by two aspects, one of demand and the other of supply.
“Supply rates are not controlled by the interest rate, but demand rates, which are for consumption, are,” he noted, stressing that with the increase in interest rates the Central Bank hopes to specifically attack this factor demand.